Libya says aims to run economy, banking system on Islamic lines

TRIPOLI, Jan 6 (Reuters) - Libya will transform its banking
and economic system to comply fully with Islamic law that bans
interest payments, the economy minister and other officials said
on Monday, but they gave scant details on how the plans would be
implemented.

Under Muammar Gaddafi, who was overthrown in 2011, the
growth of Islamic banking was not encouraged and four
state-controlled institutions dominated the relatively
undeveloped financial sector of the OPEC oil producer.

Two years after Gaddafi's ouster, Prime Minister Ali
Zeidan's government says it wants to attract foreign investment
and develop the non-oil sector of the economy but is struggling
to assert its authority against heavily-armed tribesmen and
militias and parts of the country remain outside its control.

It has also been weakened by political wrangling with
Islamists who dominate the parliament, the General National
Congress (GNC), which strongly backs the plans to introduce
Islamic law into the economy.

Economy Minister Mustafa Abu Fanas said experts would now
study how best to apply Islamic Sharia law in the economy.

"Regarding a starting date, this will need studies ... to
see how and when we will transform," he told reporters on the
sidelines of a conference organised by his ministry to explore
ways to introduce Islamic law.

"I can't give an exact start date," Fanas said.

"STRONG ECONOMY"

When asked whether banks could retain conventional business
models, he said: "Many researchers say there could be a gradual
transformation by the Islamic and other banks towards an Islamic
system, but in the long-term it is in our interest to have it
... to build up a strong economy."

Some banking officials, technocrats and liberals privately
fear a hasty transformation might add to the political turmoil
in Libya, where militias use weapons seized in the 2011 uprising
to lay siege to ministries or oil facilities to press their
financial and political demands.

Fanas said the GNC had given the government time to ban
interest payments, with the change to be in force by the start
of 2015.

Salah Makhzoum, deputy head of the GNC, told the conference
that Libya would be joining a growing international trend as
more and more states turned to Islamic law following banking
crises in the United States and Europe.

"The world is moving towards an Islamic economy," he said.

Libya has about 16 mostly conventional banks, which have few
ties with the outside world, a legacy of its long isolation
under Gaddafi.

As well as banning interest payments, Islamic law also
forbids investment in the gambling industry and in firms
producing alcoholic drinks or pornography.

Fanas said Libya had become too dependent on its oil sector
and said the government wanted to boost investment to upgrade
infrastructure including hospitals and universities. It is also
overhauling a foreign investment law from the Gaddafi era.